Malinvestment. A word we will hear more often

On the one hand, a record number of new private sector jobs have been created. Yet, contrary to what you might therefore expect, the data shows little GDP growth. How come? Is it really the case that productivity can have done as badly as that would imply?

Then we've seen Sterling fall, yet exports perform badly. You'd expect the opposite. And despite the dark warnings about deflation, it is inflation that has proved stubbornly high.

How to explain all this? Malinvestment, in a word.

According to that deeply unfashionable Austrian school of economics, the misallocation of credit causes malinvestment. Think of malinvestment as a kind of economic indigestion.

Some bits of the economy expand rapidly – albeit in a way that is unsustainable. Other bits – which need paying punters rather than cheap credit – do not. Inflation targeting misses the mark because it is based on monetarist assumptions that don't hold.

Those productivity and GDP numbers look bad, but only because the cheap credit made growth in financial services and property appear greater than it was. Malinvestment also helps explain why Ed Balls' "more stimulus" approach to the economy would be hopeless.

Understand malinvestment and much of the contradictory economic signals start to make more sense.